IHS FAIRPLAY

Danish Maritime Days 2016

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20 | October 2016 | Fairplay.IHS.com Growing pains ahead ↘ The container shipping sector is working throughwhatisdescribedasa'lostdecade',withrates slidingrelentlesslyandmorevesselslyingidle;carrier consolidationistheonlysuggestedsolution. In a revealing session at TPM (Trans-Pacific Maritime) 2016, Barclays Capital equity analyst Brandon Oglenski drew close parallels to a period of bankruptcies and enforced consolidation in the US railroad and aviation sectors in the 1970s and 1980s. "This will be a long and painful path to recovery for container shipping," he said. The industry should expect "a wave of consolidation" to change what has become an unsustainable business. Thelevelofunsustainabilityontrans-Pacificroutes wasdetailedbyIHSMaritime&Tradesenior economistMarioMoreno,whoshowedhowa12.5% appreciationinthevalueoftheUSdollarin2015had hadasignificantnegativeimpactonAmericantrade. ExportstoAsiaareexpectedtoslideby0.8%thisyear to6.3millionteu,withthedollar'svaluepeakingin thesecondquarterof2016beforelevellingoff. Meanwhile,withChina'sshareoftheAsia-US containerisedtradenowat64%andgrowing,Vietnam hasovertakenSouthKoreaassecondlargestexporter ofcontainerisedgoods,withgrowthbetween2007 and2016averaging10%ayear. Thetradeimbalanceonboththetrans-Pacificand Asia-Europeserviceshasledtoanincreaseinbothlost sailingsandlay-ups.Between2%and7%ofcapacityhas beenremovedfromAsia-Europethroughcancelled sailings,andgloballyabout5%ofthefleetisidle,said PhilipDamasofDrewrySupplyChainAdvisors.That hastaken1millionteufromthemarket,althoughthere hasbeenlittlepositiveinfluenceonfreightratessofar. "In2009,theidlefleetaccountedfor11%ofthe globaltotal,"soDrewrydoesnotforecastareturntoa positionofbalancein2016."Capacityutilisationonthe fourmaineast-westtradeswas88%in2015and,in spiteofattemptstotakeslotsfromthemarket,looks likelytoslipfurtherto85%in2016."Beneficialcargo ownersshouldsetcontractratetargetslowerthanlast year,"Damasconcluded. OglenskicautionedthatBCOsmightlikethe outcomebut"thisisnotsustainable.Noonegoesout tolosemoney,howeveriflineAfearsthatlineBwill winmarketsharebybuyinglargerships,itwilldothe same."Theresultisincreasedpressureonfreight rates,whichleadstoconsolidation.Twentycarriers currentlyholdan80%shareofthecontainermarket; thiscouldbecomefourorfivecarrierswitha60% shareveryquickly. Asifoncue,FrenchcarrierCMACGMannounced planstoplacesix18,000teuvesselsonitsAsia-USwest coastservicesfromtheendofMay,followingthe successfulcallofCMACGMBenjaminFranklinatLong Beachon19February.Thisfocusoftheline'sfleetof megashipson"themostactiveanddynamicmarket" isadirectchallengetotrans-Pacificcompetitorsata timeofincreasedimbalance. ThemoveaddedfueltoawiderTPMdebatethathad heardHapag-LloydCEORolfHabbenJansenquestion FAIRPLAY Industry insight

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